Home price surge fastest in 25 years

U.S. home prices increased at the fastest pace in 25 years during the second quarter, as the economy improved and low mortgage rates made financing cheaper.

Prices climbed an average of 9.4 percent from a year earlier, faster than the first quarter's rise of 8.3 percent, according to a report from the Washington-based Office of Federal Housing Enterprise Oversight, or Ofheo. It was the fastest pace since 12 percent in the fourth quarter of 1979.

Homes are getting more expensive as a stronger job market coupled with low mortgage rates make it possible for buyers to bid higher for a property. Price growth likely will slacken when interest rates rise, the office's chief economist Patrick Lawler said.

"House prices may become increasingly vulnerable to potential sustained higher interest rates in the future, but that has not happened so far," Lawler said.

The average rate for a 30-year fixed mortgage probably will rise half a percentage point to 6.5 percent next year, reverting to 2002 levels, according to Fannie Mae, the largest U.S. mortgage financier.

Measured on a weekly basis, the rate hit a nine-month low of 5.4 percent in mid-March, which would have spurred second-quarter sales as loans closed in that period.

Nineteen regions had above-average annual price growth in the second quarter, led by Nevada, at 23 percent, Hawaii, at 19 percent, California, with 18.4 percent, Rhode Island, at 17.9 percent, and Washington D.C. with 16 percent. Prices in New York gained 11 percent.

The states with the slowest year-over-year price growth were Utah, at 2.6 percent, Texas, with a gain of 2.9 percent, and Indiana, at 3.1 percent.

The study excludes properties with mortgages higher than $333,700, the maximum amount allowed in 2004 for loans bought by government-chartered Fannie Mae and Freddie Mac. It tracks average house price changes in repeat sales or refinancing of single-family properties in their portfolios.